Big Dutch pension funds keep €19bn in commodities

Quarterly reports published by ABP, the world's third-largest state pension fund, and PFZW, the second-largest pension fund in the Netherlands, showed commodities were their worst-performing asset in the last three months of 2012.
Photo: Bloomberg

by
Ivana Sekularac

The two biggest pension funds in the Netherlands plan to maintain investment in commodities even after their latest quarterly reports showed commodities as their worst performing asset class and a big US fund halved its exposure.

Dutch funds ABP, for state employees, and Pensioenfonds Zorg en Welzijn PFZW for health and medical care workers, along with Californian state pension fund CalPERS, were among a handful of big pension funds that invested in commodity derivatives as an alternative to stocks and bonds in the middle of last decade.

CalPERS slashed its investment in commodity derivatives by more than half late last year from $US3.45 billion to $US1.56 billion on October 31.

ABP and PFZW have kept their exposure to commodity derivatives unchanged, at 3.6 per cent and 7 per cent of their total portfolios, respectively.

The two funds have total commodities investments of more than €19 billion, although ABP's includes investment in resource company stocks as well as commodities markets.

BALANCING RISK

"The purpose of the commodities in our portfolio is diversification and inflation-hedging," said Jan Willem van Oostveen, PFZW's manager for investment and financial policy.

"An investment in commodities is lowering the total amount of portfolio risk. If you take them out of the portfolio, the total risk is going to increase."

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Quarterly reports published by ABP, the world's third-largest state pension fund, and PFZW, the second-largest pension fund in the Netherlands, showed commodities were their worst-performing asset in the last three months of 2012.

PETROLEUM MARKETS BIGGEST INVESTMENT

PFZW's commodities investments lost 0.8 per cent overall in 2012, falling 1.6 per cent in the last quarter, its latest quarterly report showed.

PFZW allocated €9.315 billion of its total assets of €129.6 billion to commodities. Of that exposure, 80 per cent is in petroleum markets, 10 per cent in industrial metals, 5 per cent in agriculture and 5 per cent in livestock.

ABP said 3.6 per cent of its total assets of €281 billion are held in commodities, worth about €10 billion, shared between commodity market investment and resource company equities. It reported a loss of 4.2 per cent for commodities in the last quarter of 2012 but said that overall in 2012 its commodity investments rose 4.4 per cent, following a rise of 6.1 per cent in 2011.

It declined to give a breakdown of its commodities investment.

TIMBERLAND, IRON ORE

APG, the asset manager of ABP, said the fund had increased investment in natural resources company assets, which are part of the commodities portfolio, to counter effects of volatility in the market.

"The combination of liquid commodities and natural resources should lead to a better risk/return relationship. This, for example, via diversification across sectors - adding timberland as a sector - and within sectors - for example adding iron ore," Olav Houben, head of commodities at APG, said.

The fund invests in production companies in the mining, oil and gas sectors that "hedge their commodity sensitivity as little as possible", he said.